Trade Deficit Up One Percent

WASHINGTON – The U.S. trade deficit climbed to $41.77 billion in October as Americans' appetite for imports hit a record high, offsetting a sizable gain in exports, including the best showing for sales of farm products in seven years. The politically sensitive deficit with China hit an all-time high.

The Commerce Department (search) reported Friday that the October trade imbalance was up 1 percent from a September deficit of $41.34 billion. It was the largest red-ink trade figure in seven months.

For the year, the U.S. trade deficit (search) in goods and services is running at an annual rate of $490.8 billion, far worse than last year's record deficit $418.04 billion.

The record trade deficits present a major political headache for President Bush, coming as they do at a time when the country has lost 2.8 million factory jobs, reflecting 40 straight months of job losses in manufacturing.

Democrats campaigning for Bush's job have charged that the administration is pursuing failed policies in trade that have done too little to protect U.S. workers from unfair foreign competition.

Critics have singled out China's surging trade surplus with the United States, arguing that the country is not living up to market-opening commitments it made when it joined the World Trade Organization two years ago.

U.S. manufacturers also contend that China's policy of linking the value of its currency to the U.S. dollar has undervalued the yuan by as much as 40 percent, giving the country a tremendous price advantage over U.S. goods.

In response, the administration has pledged to vigorously push China to lower its own trade barriers and is also lobbying the Chinese government to stop linking its currency to the dollar and instead let its value be determined by market forces.

However, Federal Reserve Chairman Alan Greenspan (search) on Thursday raised questions about whether a campaign to get China to revalue its currency would actually result in a lower U.S. trade deficit.

He said that if Chinese goods such as textiles rose in price because of a strengthened currency, it was likely that producers in other foreign countries, not the United States, would be filling the orders that had gone to China.

The October trade report showed that U.S. exports to China are increasing, hitting a record of $2.87 billion. However, Chinese imports into the United States also set a record at $16.43 billion as Americans' appetite for Chinese toys, electronic goods and clothing continued unabated.

The difference between imports and exports left the U.S. trade deficit with China at a record $13.57 billion for the month, up 6.9 percent from September.

America's deficit with Japan was up an even sharper 25.4 percent in October — to $6.44 billion — still far below the deficit with China. Before the explosion of trade with China, Japan for decades occupied the No. 1 position as the country with the largest trade imbalance with the United States.

The overall trade deficit of $41.77 billion in October reflected a 2.6 percent rise in exports, which hit their highest level in 19 months, and a 2.1 increase in imports which hit a new high of $129.73 billion.

U.S. producers have been encouraged by recent increases in exports, which have been bolstered by declines in the value of the dollar against the currencies of many major trading partners including Europe. A weaker dollar makes U.S. goods cheaper on foreign markets.

Exports of American farm products rose 5 percent in October to $4.75 billion, the best showing since June 1996. The gains were led by big increases in shipments of soybeans, fruits, frozen juices and rice.

Exports of capital goods were up 3.4 percent to $25.56 billion, the highest level since July 2001 with the increases led by gains in sales of industrial machinery, civilian aircraft and telecommunications equipment.

Foreign sales of American-made autos and auto-parts were up 2.7 percent to $6.93 billion, the best showing since March 2000.

On the import side, the gains were led by a 5.8 percent jump in imports of foreign cars and parts, which rose to $18.42 billion in October and a 5.3 percent increase in other types of consumer goods which hit $29.03 billion in October, reflecting big increases in shipments of televisions, household good and clothing.

America's foreign oil bill fell by 1.9 percent, to $10.97 billion, in October even though the volume of crude oil shipments rose to the second highest level on record. However, this was offset by a drop in the average price per barrel of crude oil, which fell to $26.25 compared to $26.48 in September.